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Did Microsoft Scroogle Itself?

Chromebooks gained a large chunk of the commercial channel PC business. Did Microsoft focus on the wrong thing?

2013 was a pretty good year for Google's (NASDAQ:GOOGL) Chromebook. It was a consistent staple in Amazon.com's best-selling laptops category and attracted the ire of Microsoft(NASDAQ:MSFT). Although Chromebooks haven't represented a large portion of the consumer market in 2013, businesses and schools have dramatically increased their adoption of Google's laptop line.

According to the NPD Group, Chromebooks accounted for 21% of notebook computer sales in the U.S.'s commercial channel through November. In other words, Google is finding its ways into the hands of students and employees -- a growing market. Meanwhile, Apple(NASDAQ:AAPL) saw its desktop and notebook sales slide, and both it and Microsoft lost market share in the commercial channel.

The question is, did Microsoft's anti-Google ad campaign work, or did the company focus on the wrong thing?

What do retail numbers look like?Beyond anecdotal evidence that the Chromebook is eating into traditional laptop sales, there hasn't been much hard evidence to prove that Chromebooks make up a very significant portion of sales.

The best evidence is from the NPD Group, which reported that Chromebooks accounted for just 3.3% of back-to-school laptop sales. But, that survey was taken well before Microsoft began attacking the Chromebook. At the same time, Google has maintained a strong presence in the commercial market throughout the second half of the year.

Microsoft may have targeted the wrong marketIf Google maintained its run rate from the 10-week back-to-school period throughout the year -- 17,500 units per week -- it still would have ended up retailing fewer units than it shipped through commercial channels.

Meanwhile, Apple has consistently increased its share of the retail market over the last decade, and sales of its Macintosh line have declined more slowly than the rest of the market in recent years. In its fiscal 2013, Mac sales declined 10%, which is on par with IDC's forecast for the global PC market in the calendar year.

Did Microsoft drop the ball?The vast majority of the Chromebook's market gains came from Microsoft, as both Windows notebooks and desktops saw significant declines. It's worth noting that Windows tablets grew the company's share 1.4 percentage points, but shipments were not enough to offset the decrease in desktop and notebook sales.

Interestingly, in the back-to-school survey, Windows notebook market share also fell most significantly, implying that there's a similar amount of people switching from Windows to Chrome OS in the retail industry as there are in the commercial industry. It's likely that the use of Chromebooks at work or school has influenced many consumers to buy one for personal use.

There's not much that Microsoft can do to compete with Chromebooks in businesses and schools. If a Chromebook can offer everything an employee or student needs, there's a good chance it will win the sale on price alone. Google has proven it's more than willing to sell hardware with practically no margin.

Apple, too, can't compete directly with Google on price, but the company makes more specialized high-end computers that already target a small portion of the market. The potential negative impact from losing commercial channel market share to Google is much smaller for Apple than it is for Microsoft.

A bigger threat going forwardChromebook shipments will likely be close to 2 million in the U.S. this year, based on NPD's data -- not a huge portion of the market. Going forward, though, Google might capture a bigger share of the commercial market, which should translate into more retail sales. Microsoft will need to maintain pressure on Chromebook sales to ensure that Google's retail market share remains low.

Author

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He consumes copious cups of coffee, and he loves alliteration. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinals mania ... Follow @admlvy